04 May 2019 10:00 AM

Saturday PS: And the next con...

A fortnight ago, I meandered into the whole question of fractional reserve banking, the ability of banks to re-lend more than £90 of every pound deposited, meaning that £90, when re-deposited, becomes the base for £80 of fresh loans, and so on…until the last ten per cent is gone.

Thus, I wrote, is money created in the modern world - essentially, because someone has gone into debt.

What a con.

Thanks to a paper sent by a friend and reader, I now discover this is just an intermediate con and the real racket lies one step beyond, with banks simply creating money out of thin air. Once I have a proper grasp of this, I’ll get back to you on it.

In the meantime, here’s a second of the Big Three con tricks, limited corporate liability. I wrote my second ever opinion piece for The Guardian on this, and afterwards was, I believe, regarded round the office as a somewhat overcaffeinated young man, albeit jolly enthusiastic.

You wait, I thought. This one is going to blow.

That was 29 years ago. Still, one day…

Limited liability is a wonderful wheeze whereby business owners can walk away from their debts, leaving society – whether trade creditors or employees – to pick up the pieces. Long before the financial crisis, this was the original case of profits being privatised and losses socialised.

All you need to enter this magic protection racket are those little letters PLC (in Britain), Inc (US), SA (France), Pty Ltd (Australia), and so on…

Surely, you ask, there is more to it than that?

Not really, although there are a couple of qualifications.

The first is that, while anyone can apply to incorporate their enterprise, the value of limited liability is, er, limited for smaller businesses. Banks and other lenders aren’t stupid (whatever signs there may be to the contrary) and will usually demand a personal guarantee from the owner or owners before advancing a loan.

The second is that, since 1986, it has been possible to pursue the directors of a company for civil damages for creditors if they can be shown to have knowingly traded while insolvent or failed to minimise the loss to creditors.

Other than that, this is pretty much a one-way bet.

But its justification is hard to fathom. Laws against theft of property or injury to the person are pretty easy to explain to the proverbial man from Mars in terms of natural justice. But by what right does an inanimate company become a person in law, required to hand over to its (human) owners all the money it makes but to retain in its fictional persona the money it loses?

The only half-plausible explanation I have ever heard is that limited liability allows companies to continue beyond the lifespans of their founders. But surely some legal mechanism can be devised to deliver this benefit that doesn’t involve shrugging off hard-to-pay debts?

Oh, and the third con mentioned earlier? The mysterious concept of “trusts”, the only non-human entities that can own their own assets without themselves having a human owner.

But that’s for another day.

When everyone’s responsible, no-one is

I rolled up at the polling station Thursday evening not entirely sure which local authorities were submitting their representatives for re-election: West Sussex (county), Mid-Sussex (district) or the town council (what would be a parish council in rural areas). It turned out to be these last two, but it does make you wonder why we, in common with much of England, need three tiers of local government.

On a piece for the Lion & Unicorn site in August 2015, I went into this question in more detail but for now I’d just say that I suspect the present system – muddied lines of authority and itty-bitty elections in which some councillors are up for election some times and others at others – suits local and national bureaucrats just fine. No accountability to the voters whatsoever. Bliss!

Miscellany on Saturday

TIME was when business names were reasonably self-explanatory: Harrison & Co, brewer/motor mechanic/auctioneer. Now we live in the age of assorted “service” outfits with names such as Magenta 9. Here are some of the people who contributed to City AM this week, complete with their job descriptions.

On Tuesday:

Jennifer Emery is global people leader at Arup, and the author of Leading for organisational change

Emily Foges is chief executive of Luminance

On Wednesday:

Lucinda Kingham is senior account executive at Firefly Communications

On Thursday:

Adrian Moorhouse is managing director of Lane4

Don’t go down the mine, dad.

AT London Bridge this week, we endured a mid-afternoon practice alarm, which involved a good couple of minutes of honking sirens interspersed with calls for “Inspector Sands”, the rail people’s babyish “code” for anti-terrorist police. This was followed by: “Due to [they meant ‘owing to’, but never mind] a public emergency, passengers must leave this area immediately. Please obey the instructions of staff.” Obey a lot of ticket collectors? Don’t think so.

SOME time after everyone else, I have read my first Martyn Waites novel, a spooky thriller called The Old Religion (ZAFFRE; 2019). Very good too. I should have skipped the author interview at the end, much of which comprised a boilerplate lovey anti-Brexit rant about how Leave voters were “lied to”. But I read it. First and, I fear, the last.

CAN I ask private-school heads and other defenders of independent education to stop using the language of their enemies? This week, Barnaby Lenon, the former headmaster of Harrow, in an otherwise fine address, was just the latest to speak against the “abolition” of independent schools. The State can “abolish” only those entities that it owns: grammar schools, the Trooping of the Colour, capital punishment, Westmoreland County Council, the Educational Maintenance Allowance – even the monarchy. Regarding independent schools, it can “prohibit”, "suppress" or “ban” them, both words sounding suitably menacing.

I can't be the first to suggest that, given the uselessness of the British State, the sacking of Gavin Williamson as Defence Secretary may prove a replay of Peter Mandelson's 2001 Cabinet departure over the "Hinduja passport affair." In other words, we'll find he did nothing wrong.

PPS TO end where we began. Many years ago, in a friendly argument about the (to me) iniquities of limited liability, my interlocutor said that even were it to be swept away, one could recreate all the benefits with a fairly simple and inexpensive insurance policy, available for businesses.

Was he not, I asked, forgetting something?

What?

The insurance companies themselves would no longer enjoy limited liability. No-one would. The party would be over.